Category Archives: M&A

Buying EGC Unicorns: be sure to look under the horn

Emerging growth companies (EGC) bring new innovations and services to the economy – and opportunity to the capital markets. They also are sparkling, bedazzled targets for acquisition, fueling corporate and earnings growth.

By default, the DNA of the startup environment is high risk and (nose to the grindstone) high reward. However, regardless of the speed that the working teams want the deal closed, the acquirer the must cautiously evaluate the EGC’s technical and marketable “reality.” Deep, thorough due diligence will separate the real Unicorns from those creepy Thestral horsey-things from Harry Potter. (Google it)

unicorn222222

This first phase of diligence involves the entire senior team: technical, accounting, marketing and legal. Our M&A quick overview sheet highlights the five stages of an acquisition, for both buyer and seller. Download it here.

Technical caveat emptor:

A fundamental and slightly paranoid review of the EGC’s technology, products or services is vital to guarantee that it delivers the products and promises as advertised. Also, the buyer needs to know exactly what it is buying… including IP. Most importantly, it is precarious to under assess the commercial practicality of the EGC’s offering.

If the acquirer’s goal is to purchase the business and assets, including the all-important intellectual property, the working team must be sure to know why they are considering the acquisition. Do not assume that because the target’s back-office and technology is tangible, that target’s offering fulfills a real need in the market.

IP ownership

With IP rights, it is core that a buyer evaluate the exact ownership details of the IP being acquired. Often the case with tech and pharma EGCs, they have incorporated specifically to commercialize technologies created by someone other than their founders and with third-party funding. All diligence into the IP ownership must begin with the IP’s originator to clarify the scope of their ownership and rights, including any ownership rights their employer has. If the originator developed the IP while utilizing the resources of another employer or a third-party, diligence of restrictive covenants need great precision to assure there is no IP infringement.

The buyers IP diligence should be conducted by technical and legal teams with patent and employment law expertise, especially if the IP was originated with grant monies, medical laboratories, university grants… including any rights of professors and students.

Legal review

Diligence with a legal lens is essential to expose any possible obstacles to the target’s legal stance to be acquired – critical for venture capital-backed companies.

  • Duly authorized and validly issued shares
  • Share transfer restrictions
  • First refusal rights and encumbrances
  • Representations and warranties towards founders or key stockholders
  • Indemnities or escrows

Financial diligence

With financial due diligence, the buyer must dig deep:

  • Additional research and development costs
  • Product and service production
  • Sales and marketing expenses
  • Licenses and contractual obligations
  • Market, competitive and pricing analysis
  • Forecasting and budgeting

EGC, unicorns or not, often are generally built on a wing and a prayer i.e. short on resources. This may create a financial environment of unsophisticated if not creative accounting and reporting.


A great start-up can bring its acquirer into expanded markets with new products, services and hopefully a pipeline of “next gen” ideas. Proper, methodical business, technical and legal diligence is essential – not to reign in any enthusiasm, but to build upon it.

dowloand-button

Mid-market M&A video session: Goals, preparation and hiring an intermediary

Executing your first M&A, no matter what side of the deal you are on, is a complicated venture. Our 3-part video session is a smart and direct primer on the step to assure success.

The complete first session, below, addresses goals, preparation and hiring an intermediary. Kudos to Michael Schwerdtfeger, Chapman Associates, our expert.


In addition to the video:

Click here for the eBook companion to the video.

Click here for our Five Stages M&A overview.

Vintage Data Room Powered by EthosData Awarded Virtual Data Room Rising Star-U.S. from Acquisition International

Multi-award winning platform additionally recognized as Most User Friendly at annual M&A Awards

NEW YORK, August 25, 2015 / PR Newswire / — Vintage, the capital markets, corporate services and institutional & fund services division of PR Newswire, today released that Acquisition International, a global corporate finance publication, has announced that the company’s Virtual Data Room platform, offered in partnership with EthosData has been presented Virtual Data Room Rising Star – U.S. at the 2015 M&A Awards.

Virtual Data Room Rising Star - US

In addition to Virtual Data Room Rising Star – U.S., the platform also won:

  • Most User Friendly Dataroom
  • Virtual Data Room Provider of the Year – China
  • Virtual Data Room Provider of the Year – India
  • Virtual Data Room Provider of the Year – Spain

“Vintage’s partnership with EthosData has become an important link in our intelligent value chain,” said Liam Power, president of Vintage. “Having our collaboration recognized with such an important award validates the teamwork our joint efforts bring to our clients.”

The prestigious Acquisition International M&A Awards celebrate the outstanding efforts and achievements of organizations involved in identifying, coordinating and seeing through to completion those important deals that could make a huge difference to a business, a local economy or even an entire country. These awards recognize the dedicated and experienced investors, advisers, financiers and service providers who have been selected for their expertise in their specialized field and, most crucially, nominated by their clients and peers.

V-5stagesM&A

To help guide companies through their first M&A experience, Vintage recently published the “The Five Stages of M&A” one-sheet guide which illustrates a high-level overview of the M&A process. Download it here. 

All of the awards are handed out solely on merit and are given to commend those most deserving for exceptional service over the last 12 months. Now in their fourth year and distributed and promoted across thier established media outlets and platforms, Acquisition International’s M&A Awards have rapidly become one of the most important and highly respected programs of the year.

“This is the third year in a row that the readers of Acquisition International award our data room service this distinction. We are very proud of this and will keep working hard to provide the best service and the most secure, easiest to use dataroom” says Francisco Lorca, Founder and CEO, EthosData.

About Vintage

Vintage, a PR Newswire division, is a top-three provider of full-service regulatory compliance and shareholder communications services, delivered across our three practice areas: Capital Markets, Corporate Services and Institutional & Fund Services. Founded in 2002 and acquired by PR Newswire in 2007, Vintage has evolved to become the industry’s intelligent value choice. We deliver a flexible balance of people, facilities and technology to ensure that regulatory compliance and shareholder communications processes are efficient, transparent and painless. Services include IPO registrations, transactions, virtual data rooms, EDGAR & XBRL filing, typesetting, financial printing and investor relations websites. www.thevintagegroup.com

About EthosData

EthosData is a leading global provider of Virtual Data Rooms managed and owned by M&A and corporate experts with executive experience at McKinsey & Co., GE Capital, Credit Suisse and First Data. EthosData is partly owned Moody’s Analytics. With offices in the main financial hubs in Asia, Europe and the Americas, EthosData is uniquely positioned to serve their clients globally.

Media Contact:
Bradley H. Smith
Director of Marketing, IR and Compliance Services
PR Newswire & Vintage
+1 201.942.7157

bradley.smith@prnewswire.com

VIDEO: The factors driving the M&A volume in 2015

Our Vintage / Mergermarket event  – M&A and Private Equity 2015: Keeping up the momentum – brought top NYC lawyers and PE experts together to discuss the current and future environment of mergers and acquisitions in context to many macro issues.

.

To view the entire event, or select specific questions, CLICK HERE. In addition to the conversation above, topics discussed include:

  • M&A environment overview
  • Main drivers
  • Business development companies’ (BDC) role
  • Active sectors for M&A
  • Technology
  • IPO market
  • Q&A

Our one-page guide, CLICK HERE, discusses the macro stages of both sides of the M&A transaction.

Our role within M&A is two-fold: 1.) the set-up and management of the secure virtual data room (watch video demo) and 2.) with the material disclosure required to the SEC and/or across the news media and to shareholders.

dowloand-button

Merger discussions… to disclose or not to disclose

We’ve all read the stock trailers across the bottom of MSNBC “..after the acknowledgment of merger talks, the company’s shares jumped $9.35 yesterday, to $24.50, more than double the closing price of…  

Working with virtual data room (M&A) clients, one issue that arises quite often is “when does a company need to disclosure their merger discussion? When is the information material?”

hamletaa

Our answer comes in two parts – one a firm and concrete response, the other a vague-ish, common-sense-ish directional response:

  • Ask your counsel
  • A merger is material and the timing for corporate disclosure of material information is left to the good faith business judgment of management.

Firstly, we know that the SEC’s core definition of material information is the widely acknowledged “total mix of information” test. Under the total mix test, companies need to ask themselves whether there is a substantial likelihood that a reasonable investor would have viewed the misrepresented information, or disclosure of omitted fact(s), as having significantly altered the “total mix” of information available to the investor.

In plain English: A fact is material if a reasonable person would consider that fact important when deciding whether to buy or sell shares of stock.  

In the past, issuers have tried to define a hard edge for merger materiality, but the courts rejected any bright-line rule that preliminary merger discussions do not become material until an “agreement-inprinciple” has been reached. Instead, the court developed a “probability versus magnitude” approach to materiality. This approach requires the working group to make a fact-specific inquiry to assess the materiality of the merger’s negotiation. If the acquisition is meaningful to the company on all financial levels, then the probability of the transaction being consummated must be considered high. If there is a low probability that the transaction will occur, the need for disclose decreases despite the significance of the transaction. Likewise, although the probability of a transaction may be high, if its impact on the company, i.e. its magnitude, is low, the need for disclosure is also low. 

When determining the timing for disclosure of material information on corporate M&A, management must find balance between keeping its investors informed while guarding competitive information. This balance is possible to achieve if, before the merger talks even began, management has strictly adhered to its well-practiced RegFD policies and procedures… “no comment.”

Click here to download our 5 Stages of M&A quick guide

Click here to download our Five Stages of M&A quick guide

As investor relations departments know well, absent the affirmative duty to disclose, a company does not have an obligation to disclose material non-public information. In other words, a company is not required to disclose information as soon as it arises simply because it is material. Silence, absent a duty to disclose, is not misleading under Rule 10b-5.

When no circumstances are present that require immediate disclosure, the timing for disclosure of material information is left to the good faith business judgment of management. This is the 50 shades of RegFD investor relations breathes each and every day. Make sure the IRO is in the M&A working group.

And, it goes without saying, we’d be pleased to be your vendor-of-choice for your shareholder disclosure, both across the wire and with the SEC.

The success of confidential IPO filings is no secret

confidentYesterday, the WSJ’s always-excellent Emily Chasan wrote a smart piece regarding the JOBS Act’s confidential IPO provision’s effect on M&A.

This JOBS provision created a confidential SEC review procedure for IPO registration statements of “emerging growth companies” prior to their first registered sale of common equity. Generally, an emerging growth company is an issuer that has less than $1 billion in total annual gross revenues.

The phrase “confidential” is misleading, particularly in an industry that is dedicated to transparency. “Confidential” tends to bring up imagery of James Bond, insider whispers, dark pool trading and pump-n-dump ninjas.

Nothing of the sort. With a confidential IPO registration, all draft IPO registration statements and subsequent amendments are filed with the SEC for non-public review. Like all S-1 files we submit for clients, the SEC is carefully reviewing the filing.

CLICK HERE FOR A WHITEPAPER ON THE S-1 FILING PROCESS WORKFLOW

Although a company’s S-1 paperwork may be for the SEC’s eyes only, their intention to hold an IPO is not a secret – and that certainly flags them looking for an exit.

Per Emily:

The law forbids the Securities and Exchange Commission from publicly releasing the names of companies that file confidentially for IPOs. But it doesn’t preclude the companies themselves from disclosing that information, or selectively telling potential buyers about their confidential IPO filings, if they choose to do so.

Since the owners of a company preparing to go public want to monetize their investment, the very existence of the confidential filing can accelerate a sale process for a company, and ultimately lead to a less risky outcome for private-equity and venture-capital investors, who can get paid in one fell swoop once an acquisition closes.

In all, the SEC has received stealth IPO filings from about 850 companies in the past three years through June 30, it says… However, only 479 of those filings actually led to an IPO, according to Dealogic, a research firm.

So, IPOs are down 33% this year compared to last – but thanks to the confidential filing process, the “testing the waters” element of the process – once thought to eliminate the media frenzy and market speculation (and breathing room) of an IPO – also means hanging up a “For Sale” sign as a signal to a possible acquirer in this M&A-rich environment.

CLICK HERE FOR THE 5 STAGES OF M&A GUIDE CHART

Vintage clients have the pleasure of burning the “great service” candle at both ends here – beginning with the S-1 filing and ending with the virtual data room management. 

10 years later, KPMG advice rings true for M&A best practices

While researching the annual (and coveted) KPMG 2015 M&A Outlook Survey (CLICK HERE), their 2005 report Googled up to the surface. What stood out is that the best practices offered by M&A champions exactly ten years ago remain germane.

merger

Certainly, the technologies have improved to make the processes smoother ie: our virtual data room, (VIEW VIDEO DEMO) but the actual success strategies has remained solid and steadfast.

NINE PRACTICES FROM THE VERY FIRST (2005) KPMG M&A OUTLOOK STUDY

LEVERAGE RESOURCES

Survey respondents indicated that nearly twice as many non-M&A staff people work on deals as “core” M&A staff. On larger deals, an average of four M&A employees work on a transaction, and another eight from other business units. Companies learned that leveraging resources and sharing responsibilities among internal channels increases the chance of success.

IMPART STRUCTURE TO PROCESS

Leading M&A departments tend to implement distinct deal hurdles, through two main methods: the use of sequential committees — where proposals are approved before additional resources are committed — and the implementation of a more thorough transaction documentation process. Almost 75 percent of survey participants indicated that incorporating additional structure increases the effectiveness of an M&A team.

ROTATE STAFF

The KPMG survey data revealed that M&A groups who rotate staff between business units are more likely to achieve deal success than those that don’t promote such rotations.

SYNERGIES MATTER

Companies that use their corporate development groups to help quantify synergies and integration costs stand a greater chance of achieving those objectives than those relying solely on the expectations of their business units. It is incumbent upon the corporate development team to perform their own check of the numbers to ensure validity. While conflicts of interest at business units may occasionally play a role, interviews with executives cite lack of training and perspective in the business unit as the key reason to leverage M&A staff in this task.

TRAIN, EQUIP, TRACK

M&A executives need to know how deal activity is being monitored, whether expenditures are on target, whether synergies are being realized and whether operating metrics are being reached. Only 11 percent of survey respondents have a formal system to track deal flow, and few participants track expected synergies or costs on a majority of deals. Furthermore, most executives cited lack of training and tools as a primary impediment to improved efficiency.

SEPARATE DUE DILIGENCE

Many survey participants found significant value in creating separate investigations and work streams for assessment of the target company, the market, and the integration itself. Making these efforts distinct improves focus and makes the due diligence process replicable, which participants almost unanimously believed improves the likelihood of success.

SOURCE DEALS

According to the study, 75 percent of transaction opportunities originate from outside the corporate development group; business units account for 28 percent of sourcing activity, followed by the parent company with 26 percent. Fewer than 20 percent of deals originate from law firms, investment banks and other external entities.

UTILIZE ADVISERS

Study participants indicated several benefits to contracting external advisers during the deal process. Of the companies that hire due diligence consultants, 95 percent do so primarily to gain independent validation of key transaction assumptions, such as market drivers, competitive positioning or accounting analysis. Furthermore, while companies spend, on average, approximately $11 million per year on external advisers, roughly 80 percent of the expense comes from these three types of advisers: investment bankers, consultants and lawyers.

SEEK INDEPENDENT REVIEW

Whether it is via internal committees or third-party advisers, companies should always validate key transaction assumptions and diligence findings. Fully independent checks help ensure that deal staff have not overlooked key issues or made excessively aggressive assumptions, particularly since they may be unduly vested in the outcome. Executives say this vetting process is important no matter how experienced the deal leader is

Same as it ever was. Sounds right.

VIDEO WEBINAR 3: The Inner Workings of a Deal: Due diligence, the “docs,” and closing

The third (and final) session of our three-part webinar series, The Inner Workings of a Deal: Step-by-Step for Successful M&A Transactions, was held on two weeks ago and similar to sessions 1 and 2, we’re very pleased how well it was received. Vintage is presenting this series in direct response to the increase in clients’ M&A transaction projects. Sincere thanks to our expert, Michael Schwerdtfeger, Chapman Associates.

Click the video above for a quick snippet of Session 3, Due diligence, the “docs,” and closing. The discussion, targeted for middle-market companies, offers very tactical, tangible advice.

To watch the complete sessions, 1 – 3, CLICK HERE.

You can also download the companion eBook at that same link.

The Inner Workings of a Deal, Session 3 – Due diligence, the “docs,” and closing: Educational Webinar, June 18

Step-by-step for successful M&A with tactical guidance for a successful middle-market transaction 

NEW YORK, June 17, 2015 /PRNewswire/ — Vintage, the capital markets, corporate services and institutional & fund services division of PR Newswire, is pleased to invite securities lawyers and senior executives at entrepreneurial start-up organizations, emerging growth companies, private companies and public companies to attend this new education webinar series: The Inner Workings of a Deal.

email_button

M&A Session 3: Due diligence, the “docs,” and closing 
DATE: June 18, 2015
TIME: 2:00 PM ET
PRE- REGISTRATION: http://prn.to/1E0y3hQ
LENGTH: 30 minutes

Delivered succinctly and in plain English, this three-part series will walk viewers through the workings of a merger and acquisition. The webinars are moderated by Bradley H. Smith, Vintage’s director of marketing and features the M&A expertise of Michael Schwerdtfeger, Chapman Associates.

The-Inner-Workings-of-a-Deal-Webinar-1-Companion-1

Pre-registration is recommended to save time on event day. There is no fee to attend and there will be a live Q&A session.

OTHER WEBINARS IN THE SERIES:

email_button-view-blueM&A Session 1: Goals, preparation and
hiring an intermediary

M&A Session 2: Marketing your business, early discussions and deeper dives

ON DEMAND REPLAY

——————————————————————-

M&A Session 3: Due diligence, the “docs,” and closing 
DATE: June 4, 2015
TIME: 2:00 PM ET
PRE- REGISTRATION: http://prn.to/1E0y3hQ
LENGTH: 30 minutes

A video demonstration of the Vintage Data Room, powered by EthosData, can be viewed here: http://prn.to/1EUSM4j

“For those of us in the merger and acquisition business, buying and selling companies is second nature. We live through transaction after transaction, routinely buying and selling companies” said Michael Schwerdtfeger, Chapman Associates.

“However, in most cases, the working group involved in the middle-market companies go through the M&A process only one time. Most entrepreneurs, CFOs and CEOs don’t know what to expect from a sale of their company. Consequently, out of inexperience, middle-market and start-up business owners do themselves a fiscal disservice by failing to plan well for the biggest deal of their lives,” Schwerdtfeger stated.

Vintage is presenting this series in direct response to the increase in clients’ M&A transaction projects. Vintage provides both virtual data rooms and SEC filings of transactions.

###

About Vintage:

Vintage, a PR Newswire division, is a top-three provider of full-service regulatory compliance and shareholder communications services, delivered across our three practice areas: Capital Markets, Corporate Services and Institutional & Fund Services. Founded in 2002 and acquired by PR Newswire in 2007, Vintage has evolved to become the industry’s intelligent value choice. We deliver a flexible balance of people, facilities and technology to ensure that regulatory compliance and shareholder communications processes are efficient, transparent and painless. Services include IPO registrations, transactions, virtual data rooms, EDGAR & XBRL filing, typesetting, financial printing and investor relations websites. 

About Michael Schwerdtfeger, Chapman Associates:

Michael Schwerdtfeger provides sell-side mergers and acquisitions advisement to entrepreneurs and business owners. As a former attorney for Fortune 500 companies, Michael is able to use his 20+ years of experience in handling complex business transactions to help guide his middle-market company clients to the best outcomes, whether the right outcome is a sale, recapitalization, or other restructuring. Michael has completed well over $2 billion in transactions, primarily in the areas of acquiring, divesting, financing and developing assets for private clients, as well as for his former employers, Kinder Morgan and ARCO. To learn more, please visit www.mbsmergers.com. 

Media Contact:

Bradley H. Smith
Director of Marketing, IR and Compliance Services
PR Newswire & Vintage
+1 201.942.7157
bradley.smith@prnewswire.com

Video: The impact of interest rates and creating yield via M&A and IPOs

In this brief video clip, John Tyree, Managing Director at Morgan Stanley, offers some extremely thoughtful insights on the financial environment for mergers & acquisitions and on private equity.

If you have not logged in to watch the complete series, I invite you to. You will not be disappointed.

Click on the video above to watch clip from the panel at our Mergermarket event, M&A and Private Equity 2015: Keeping up the momentum.

  • Tal Hacohen, Partner, Orrick, Herrington & Sutcliffe LLP
  • Rory O’Halloran, Partner, Shearman & Sterling LLP
  • Michael Kessler, Partner, Riverside Company
  • John Tyree, Managing Director, Morgan Stanley

To watch the complete event or download an audio podcast, please click here.

WATCH_VIDEO_BUTTON

In addition to the full event, you’ll find links to individual video chapters including shareholder activism in M&A and technology’s role.